In simple terms, there are basically two places for companies to get cash:

Customers

Investors

Based on numerous discussions with entrepreneurs, it seems too many place undue emphasis on securing prospective investors. Perhaps there is a misconception that investors are sufficient to make marginal companies successful, or some erroneous presumption that founders should get paid six figures while fully baking half-baked ideas for products that nobody wants to buy. Don’t get me wrong, I like investors just fine. I particularly appreciate those investors who have generously entrusted funds with the various entities I’ve personally managed (and, I always feel a great sense of responsibility for returning their capital, preferably more). However, let’s ponder the limitations of investor fixation:

Investors won’t make your product better

No matter how many investors you stuff into your cap table, there is no assurance that your product is actually getting any more marketable. Customers, on the other hand, will gladly tell you when your supposedly awesome app/product/service sucks eggs, and they will annihilate your hockey-stick revenue forecast to make sure the message was clearly received. Revenue ultimately provides better feedback than focus groups, surveys, or investors.

Investors are dilutive; customers are accretive

Although some founders take this argument too far, and starve their companies of requisite capital through an exercise in counterproductive greed (see “Entrepreneur’s Disease”), investment rounds are certainly dilutive. Work hard enough on capital acquisition, and you’ll slowly become an employee of your very own dying company, while simultaneously pissing off your earliest investors. Customer acquisition, on the other hand, builds value while making virtually everyone happy.

Customers don’t care if you have investors, but investors care if you have customers

While it is theoretically possible for one investor to get a return at the expense of another investor (in structuring a takeout, stumbling upon a premature acquisition, or crafting an illegal Ponzi scheme, for example), your company simply won’t be valuable enough for an exit without a bunch of customers. If in doubt, try getting serious investors without customers. Let me know how it works out.

No customers = no cash

Even if a ridiculous amount of capital is somehow raised, an absence of customers always yields the same result: you will eventually run out of money, and further...

You will eventually run out of investors

Any pile of investor cash, no matter how large, has a bottom. I’ve seen numerous companies find it, usually because they spent far too much time looking.So, while you might occasionally need a bit of investor capital to make progress in serving customers, don’t let your sourcing priorities become confused.